The last time I weighed in on hydrogen stocks, I said that, “Hydrogen stocks are weak right now. However, as the green energy movement grows in both the public and private sector, that could change quickly. Investors should use this dip as a buying opportunity.”
That was on July 15. While some hydrogen stocks did push higher since then, most continued to pull back. However, don’t count them out for long.
For one, world leaders are racing to reduce emissions, which could include hydrogen. Plus, as noted by the Clean Hydrogen Future Coalition, “clean hydrogen has the ability to accelerate decarbonization across all sectors of our economy,” as we noted July 15.
Two, demand is expected to be off the charts. Over in Europe, the European Commission wants to increase hydrogen consumption from around 2% to about 14% by 2050.
China, which wants to become carbon neutral by 2060, could become a “hydrogen powerhouse,” according to NS Energy contributor Andrew Fawthrop. In addition, not only is the U.S. trying to lower the cost of hydrogen production, part of its massive infrastructure bill may help fuel the hydrogen sector, too.
Three, there are plenty of bullish analysts. As I also noted on July 15, Goldman Sachs (GS) and Bank of America (BAC) say the hydrogen market could be worth up to $11.7 trillion.
With all of that in mind, I’d use weakness in hydrogen stocks as a long-term opportunity.
Three to consider are:
Defiance Next Gen H2 ETF
One of the best ways to diversify in hot sectors is with an ETF. Not only do they offer a good deal of exposure to industry giants, but they do so at far less cost.
For example, the HDRO ETF (HDRO), which has an expense ratio of 0.30%, trades just under $21 a share.
It also provides exposure to related stocks, such as Plug Power (PLUG), ITM Power (ITMPF), Ceres Power Holdings (CPWHF), Ballard Power Systems (BLDP), and Bloom Energy (BE) to name a few.
If I were to buy 100 shares of the HDRO ETF, it’d cost me a little more than $2,000. If I were to buy 100 shares of just Plug Power, it would cost me $2,460. Again, far better diversification among dozens of stocks at less cost.
Also, to be included in this ETF, a company must generate 50% of their revenue from hydrogen and, or a fuel cell project, or be involved in the development of fuel cell or hydrogen sources, according to Defiance ETFs.
Geographically, the HDRO ETF has 24.6% of its holdings in U.S. stocks, about 17% in the UK, and 14% in Norway.
While the ETF has been struggling with overhead resistance around $22 (it trades at $20 today) give it time. With demand picking up steam, I’d like to see the HDRO ETF closer to $25, near-term.
On July 15, we also mentioned Bloom Energy as an opportunity.
At the time, it traded around $21 a share before running to an August high of $24.23.
Nowadays, the stock is back to triple bottom support around $20, where it’s beginning to bounce higher. From here, if the BE stock can break above resistance around S22, we could again see a test of $24.23.
If BE can also break above that point of resistance, it could refill a bearish gap around $26 near-term.
Earnings growth has been okay, too. In its most recent quarter, the company saw $228.5 million in revenue – an increase of 21.6% year over year. Gross margins of 16.3% were up 2.3% from 14% year over year as well.
The company also managed to generate free cash flow, according to the company’s earnings release.
In addition, Bloom reiterated its 2021 guidance of $950 million to $1 billion.
According to Motley Fool contributors Travis Hoium, Howard Smith, and Daniel Foelber, “over the next five years it expects to grow internationally, into hydrogen with electrolysis and clean hydrogen projects, into biogas, and even into the marine market. Altogether, management thinks these markets will have a more than $2 trillion addressable market.”
In short, there’s a lot to like with Bloom Energy.
Plug Power Inc.
Another hydrogen stock to consider is Plug Power. The last time I highlighted an opportunity in the stock, it traded around $28.
Today, it’s down slightly trading at just a little more than $26, where it’s starting to pivot higher. If I can break above resistance around $28, it could see a near-term test of $30 a share, near-term.
Wolfe Research analysts Steve Fleishman initiated coverage of the stock with an “outperform” rating and a target of $34. Reportedly, he likes Plug Power’s positioning in the hydrogen market and says it could generate “meaningful cash flow and growth,” as quoted by Investing.com.
Even better, Plug Power just expanded into Germany.
“The expansion to Europe comes as Plug faces a growing customer base abroad with the burgeoning interest in green hydrogen energy,” said Andy Marsh, Plug Power. CEO, as quoted in a company press release. “Green hydrogen serves as an instrumental part in transitioning from our reliance on fossil fuels, and Plug is well-positioned to fill the needs of customers ready to make the change.”
In addition, the company saw nearly $125 million in net revenue, and $126.3 million billings – which were up 83% and 87%, respectively year over year.
On the date of publication, Ian Cooper did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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